Friday, September 14, 2012

UCL "unlawful" prong opinion: Medrazo v. Honda of North Hollywood

This UCL opinion published in April got lost in the Brinkerblizzard, but it is important and warrants a belated post.

In Medrazo v. Honda of North Hollywood, 205 Cal.App.4th 1 (Mar. 27, 2012; pub. ord. Apr. 16, 2012), the Court of Appeal (Second Appellate District, Division Four) addressed a UCL "unlawful" prong claim that went to trial on behalf of a certified class of motorcycle buyers. Previously, in 2008, the Court of Appeal had reversed the trial court's order denying class certification. Medrazo v. Honda of North Hollywood, 166 Cal.App.4th 89 (2008) (discussed in this blog post). In its 2012 opinion, the Court of Appeal reversed the trial court's order granting the defendant's motion for judgment at the conclusion of the plaintiff's case-in-chief (essentally, a motion for nonsuit).

First, the opinion addresses the famous footnote of Tobacco II, where the Supreme Court explained that while reliance is an element of UCL standing in "fraudulent" prong cases, "there are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application." In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009).

I have always thought the concept of reliance would be irrelevant in most "unlawful" prong cases, and the Court of Appeal confirmed this in Medrazo:

[T]he Supreme Court ... explained [in Tobacco II] that an actual reliance requirement
does not apply to UCL actions that are not based upon a fraud theory. (Id. at p. 325, fn. 17). In
those actions, the plaintiff must simply show that the alleged
violation caused or resulted in the loss of money or property.

Medrazo, 205 Cal.App.4th at12 (emphasis added).

The relevant question, for standing purposes in an "unlawful" prong case, is going to be whether the defendant's statutory violation caused the plaintiff to lose money. In Medrazo, the defendant violated a Vehicle Code provision requiring that a hanger tag disclosing dealer-added charges be attached to all motorcycles offered for sale. Id. at 4. If the hanger tag is not attached, or if the dealer-added charges are not disclosed on the tag, the dealer may not collect the charges. See id. The plaintiff class lost money as a result of the defendant's violation because the class members paid such charges even though the defendant had not attached the required hanger tags. Id. at 13-14. It did not matter whether the class members had "relied" on the missing hanger tags, nor was proof required that they would or would not have bought the motorcycles if the hanger tags had been attached and read. See id. It was sufficient that the defendant had violated the law, that the plaintiffs had purchased the products, and that they paid the unlawfuly-imposed charges. See id.

Put another way, the violation was not the dealer's failure to disclose the added charges, but rather its collection of those charges in violation of the statute.

The second important holding relates to the measure of restitution to be awarded at trial. Medrazo is really the only helpful opinion on this issue since Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (2006). While Colgan was a "fraudulent" prong case, Medrazo addresses the measure of restitution in the context of the "unlawful" prong.

Medrazo held that the proper measure of restitution was the full amount of the unlawfully-imposed charges:

If, on retrial, the court determines that [the defendant's] sale of motorcycles without hanger tags (or without tags that disclosed dealer-added charges) violated the UCL, class members will be entitled to restitution of any money “which may have been acquired [by defendant] by means of such unfair competition” (Bus. & Prof.Code, § 17203)—i.e., the dealer-added charges that were not disclosed on hanger tags.

205 Cal.App.4th at 13-14 (footnote omitted) (emphasis added). There was no question about the value of the motorcycles or whether the defendant could have sold them for the same price if the dealer-added charges had been properly disclosed. No, the defendant will be required on remand to refund the full amount of the unlawfully-collected charges, period.

In short, Medrazo is a very significant opinion that should be widely cited in other "unlawful" prong cases. Here is my publication request filed in April on behalf of CAOC. Several other publication requests were also filed.